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What is the difference between Chapter 7 and 13 Bankruptcy?

Seeking bankruptcy protection from creditors is a step that should not be taken lightly. But if you have reached a point where that has become a serious consideration, you may be aware that there are two types of bankruptcy available to individuals: Chapter 7 and Chapter 13.

Let’s examine how to identify each type of bankruptcy and some of their differences.

Income qualifying restrictions:

Bankruptcy law uses a “means test” to determine eligibility for Chapter 7 bankruptcy. If as a New Jersey resident, for example, your income for the six months before filing a bankruptcy petition is the same as or less than the state median income, you may be eligible for Chapter 7. If your income is higher than the median level and you have some disposable income to work with, Chapter 13 becomes your route. 

Fresh start vs. payment plan:

If you are in a situation where you have considerable debts that can be discharged by bankruptcy and little disposable income, Chapter 7 allows you to completely eliminate more debts. Chapter 13 creates a payment plan to satisfy debt obligations instead of eliminating them outright, but you must have enough income available to make payments.

Also, because it uses discharge of debt instead of a payment plan, Chapter 7 allows a debtor to eliminate eligible debt faster than Chapter 13.

Asset protection:

In exchange for making more debts completely dischargeable, Chapter 7 bankruptcy may expose more assets to sale. There are types of “non-exempt” property that Chapter 13 will protect that may be subject to sale under Chapter 7.

Co-debtor protection:

If you have a co-debtor and want to protect that person from creditors, Chapter 13 can prevent creditors from going after the co-debtor at least until the end of the payment plan. Chapter 7, on the other hand, does not protect the co-debtor after the debtor is discharged.

Determining which debt relief solution is right for you can be complicated, and there are more options than just Chapter 7 and Chapter 13 bankruptcy. While this post may help you understand more about certain types of bankruptcy, the decision to file bankruptcy is not something that you should reach based on this article alone. A bankruptcy attorney may be able to help you to answer specific questions and to decide on what course is best for you.


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At the law offices of William H. Oliver, Jr. & Associates in Toms River and Lakewood, New Jersey, we represent clients in Toms River, Neptune, Trenton, Middletown, Red Bank, Wall, Lakewood, Lakehurst, Manchester, Asbury Park, Old Bridge, Jamesburg, Barnegat, Forked River, Manahawkin, Ocean Township, Brick, Manasquan, Howell, Freehold, Hazlet, Bradley Beach, Brown Mills, Long Branch, Keansburg, Marlboro, Bayville, Beachwood, Whiting, Sayreville, South River, East Brunswick, Monmouth County, Ocean County, Middlesex County, Burlington County and Mercer County.